Does bank size significantly explain the variations in bank stability? Does
bank funding risk significantly impact bank stability? This paper addresses these
two questions with data from the rural banking industry in Ghana. Controlling for
credit risk, liquidity risk, diversification in the business model, profitability, inflation,
financial structure and gross domestic product, the results suggest that an increase
in the size of a rural bank results in an increase in its stability. The results also show
that funding risk positively impacts bank stability. The positive relationship
between size and bank stability has important repercussions for the current debate
on whether or not to constrain bank size to insulate the financial system from future
crisis. The positive relationship between funding risk and bank stability also has
important implications for the current debate on funding of retail banks.